Munich Personal RePEc Archive

On the sustainability of maximizing GDP Growth

He, Yong (2018): On the sustainability of maximizing GDP Growth.

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Abstract

Sparked by Baumol’s revenue- versus profit-maximizing models of the firm, this paper using a growth model shows that if a nation seeks GDP-maximizing growth with capital expansion as driving force, the model could work only under the assumption that the consumers’ aversion to under-consumption, an unavoidable consequence of over-investment, remains constant, and the effects of under-consumption are not accumulative. Otherwise, it has to decelerate growth and ultimately converges to the neoclassical growth model with consumption optimality. The empirical evidence on growth models of ex-Soviet Union, China and Eastern Asia are examined to explore the extent to which the model captures the real world.

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